Industry warns TPR’s CDC code of practice proposals could be ‘too onerous’

Industry figures have warned that The Pensions Regulator’s (TPR) proposed code of practice for single employer collective defined contribution (CDC) schemes could be too onerous and set a disproportionately high bar.

Responding to the regulator's consultation, which closes tomorrow (22 March), the Society of Pension Professionals (SPP) and Aon cited concerns that the authorisation requirements could be excessive for single employers.

SPP president, James Riley, stated that while the draft code appears comprehensive, the SPP had concerns about the potential unintended consequences.

He added that the demands and therefore cost of the code were “significantly too onerous”, and risked repelling any “nascent” interest from single employers in CDC schemes.

The organisation said these unintended consequences could negative impact the future of CDC pensions.

It suggested that the regulatory attention for single employer CDC pensions should focus on ensuring that benefit adjustments (if required) are set at a sensible level each year, that member communication is not misleading and that there will be sufficient funds in the event of a future wind-up.

Also responding to consultation, Aon partner and head of CDC, Chintan Gandhi, said that it was “hard to over-state” the significance that the new CDC framework could have within the UK pensions industry.

He continued: “CDC schemes are a valuable new way for employers and employees to enable saving for retirement, building a more resilient workforce and stronger financial wellbeing.

“CDC combines fixed contributions for the employer with a clear and targeted pension income for the member – and without individuals having to make complex decisions on investment and decumulation. The progress made over the last few years on CDC’s development has been a terrific example of the pensions industry working together and constructively.

“This latest consultation from TPR has further progressed CDC’s emergence into the UK pensions market, but it does set what could be a disproportionately high bar for single employer schemes.

“In research last year by Aon, 36 per cent of respondents said they saw the benefit of setting up a single employer CDC scheme to support their workforce. However, a further 51 per cent indicated a preference for a multi-employer CDC scheme, or one set up by a commercial master trust.

“This would include a decumulation solution where they could provide an option for employees to buy a CDC pension at retirement. We know therefore that the appetite for wider forms of CDC is out there – but further work is required for this to be satisfied.”

Aon head of technical support and research, Peter Williams, added: “The proposed regulatory regime for single employer CDC schemes is most likely to be of interest to large employers, but an extension to associated employer, commercial master trust and decumulation CDC arrangements is essential to open up the option for medium-sized and small employers, and even to individuals, too.

“We would urge both the Department for Work and Pensions and TPR to move ahead with the amendments to both existing regulations and the code to accommodate wider forms of CDC.”

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